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Analysis served sunny-side-up at CBRE’s annual breakfast

In its annual review of the commercial market, the real estate firm saw improvements in all sectors.

The Hungarian commercial property market closed a successful year in 2015 as investors completed almost €750 million in acquisitions, surpassing last year’s investment volume by 60%, Lóránt Varga, managing director of CBRE Hungary told the annual CBRE breakfast on January 27 at the firm’s Budapest headquarters in the Eiffel Palace.

The volume of office market pre-leases increased to 121,000 sqm – a level not seen since 2009, while at the same time there are few vacant offices in Budapest. More industrial properties are being built in the regions, notably in major industrial centers where there is virtually no empty space. As retail turnover increases, demand for retail space is increasing significantly, and 98 new stores opened in 2015 on a total of 35,200 sqm within the 620,000 sqm of modern retail space monitored by CBRE in Budapest.

Offices were the most popular investment area last year, the segment accounting for 50% of turnover, but industrial properties also represented a robust proportion of deals. The composition of investors has changed significantly since the crisis: While the U.K. and Germany/Austria were the largest investors in 2006-07, U.S. investors were the most significant players in 2014-15, along with Hungarian investors who have now moved into second place. The German open-ended real estate funds that were active before the crisis remained absent in 2015. Low development activity has also reduced the potential range of investment products and therefore more investors are turning to older buildings with value-add potential.

“The high interest is sustainable and we expect further growth in investment volume this year: We could get close to the €1 billion mark,” said Gábor Borbély, head of research and valuation at CBRE Hungary. “An increasing pool of investors are making arguments in favor of acquisitions in Budapest with reference to strong occupational fundamentals. On the other hand, the low development pipeline is making some investors nervous with regard to whether they are able to enter the market.”

Shrinking vacancy rates

Growing office market demand and low development volume in recent years has resulted in a fall in vacant space to levels not seen since the beginning of 2008; in this regard, Budapest “overtook” its regional competitors Warsaw and Prague, where current oversupply undermines any further decrease in vacancy.
The almost 100,000 sqm of new supply scheduled for this year will not influence the declining vacancy rate, as 57% of the space being built has already been preleased. The vacancy rate has declined in the past three years across all of the 20 office submarkets surveyed by CBRE. The current Budapest average is 12.1%, 4.1 percentage points lower than a year earlier.

In the post 2014 period, industrial development in eastern Hungary dominated the regions. According to CBRE research, in addition to Budapest, with a supply of two million sqm of industrial space, there is 530,000 sqm in Tatabanya, 480,000 sqm in Győr, 415,000 sqm in Székesfehérvár, 310,000 sqm in Nyíregyháza and 210,000 in Kecskemét.

The vacant stock ratio is marginal in most of the pan-regional cities – such as Tatabanya, Győr and Székesfehérvár – and usually it is only a major company leaving that causes vacancy. In the greater Budapest area, the vacancy rate sank by 11 percentage points over the past two years, due to strong tenant demand and a complete lack of new speculative developments – and now stands at 10.6% according to Gergely Baka, head of industrial agency at CBRE.

The robust growth of household consumption – by Hungarian standards – that occurred in recent years also resulted in strong demand and supply growth in the retail sector, according to Anita Csörgő head of retail at CBRE Hungary.

The new stores that opened in 2015 would fill-up a mid-sized shopping center, as CBRE registered nearly 100 new store openings by 79 individual brands, of which 14 were new entrants to the Hungarian market.

Nearly half of the new stores were opened by fashion brands, followed by furniture and sporting goods stores. With the exception of electronic stores, all other sectors increased their retail footprint. Retailer activity has also increased in the prime high-street locations in downtown Budapest, where CBRE registered 12 new store openings on a total area of 4,300 sqm.

NEWS IN BRIEF:
C&W says it remains market leader as Budapest gets busier

Following the merger of Cushman & Wakefield and DTZ in 2015, C&W was able to retain its market leading position in the Hungarian office market sector for the fourth consecutive year, the company said on February 3. Last year the company successfully closed 117 transactions, a record of 89,000 sqm in lease transactions, C&W said in a press release. According to C&W, the Budapest office market continued the momentum created in 2014 into 2015, with another record year for take-up. Tenants committed to nearly 538,000 sqm of office space, reflecting a strong, 16% gain on 2014, which was the previous record year for take-up, the company said. This increase in demand, and the lack of new supply being delivered to the market further reduced the vacancy rate to a pre-recession low of 12.1%, creating lower vacancy rates in Budapest than in Prague or Warsaw, C&W said. “There is no doubt that 2015 surpassed everyone’s expectations in terms of take-up,” David M. Johnston, partner, head of office agency said. “We expect to see the market’s positive momentum continue into 2016, as occupational activity remains relatively robust, supported by very little new speculative supply being released to the market.”

Immofinanz finalizes portfolio sale to Blackstone

Immofinanz successfully finalized the sale of its logistics portfolio, including five properties in Hungary, to Blackstone, which is integrating all its assets into its European logistics platform Logicor, according to a press release issued on February 2. Blackstone bought the portfolio, which was valued at €536 million, less €28 mln for the cost of realizing three projects valued at €305 mln, after the repayment of relevant loans. Some €245 mln was transferred immediately, while the remainder of the purchase price will be transferred in October. Blackstone acquired all 36 of Immofinanz’s logistics investments through the purchase: approximately one million sqm, in Germany (24), Hungary (five), Romania (three), Poland (2), Slovakia (one) and Russia (one).

Prologis inks leases for a total of 98,000 sqm in Hungary

Global industrial real estate developer Prologis signed six lease agreements amounting to 98,000 sqm in five of its parks in Hungary, a sign of rising demand the company said on February 1. The firm said recent transactions include a lease renewal with Geodis for 27,800 sqm in Prologis Park Budapest-Budaörs; a renewal with Schneider Electric for 24,800 sqm in Prologis Park BudapestSziget; a new lease with a global leader in design, manufacturing, distribution and aftermarket services for 16,000 sqm in Prologis Park Budapest M1; a renewal with a global healthcare leader for 12,300 sqm in Prologis Park Budapest-Harbor; a renewal with LGI Logistics Group International GmbH for 10,700 sqm in Prologis Park Budapest M1; and an expansion with a logistics provider of 6,000 sqm in Prologis Park Budapest-Batta, where the customer now leases 28,600 sqm in total.